Reality Finally Caught Up With the NYCERS Budget: FY-2004 to FY-2025

In a June 17, 2022 posting, I outined the history of NYCERS administrative budget.

On May 9, 2024, the NYCERS trustess adopted the FY-2025 admin budget.

It was a 0.05% increase over the FY-2023 budget. See the updated table below. The City finally put the brakes on the NYCERS administrative budget.

Interestingly, the fringe benefit amount increased by 20.74% from the FY-2024 amount. In a very contrary way, NYCERS has significantly underspent its budget appropriation since 2019:

• 2023 - $105.8M
• 2022 - $105.0M
• 2021 - $84.4M
• 2020 - $77.7M

History of NYCERS Admin Budget 1996-2025

Fiscal Year	F/T Count	P/T Count	College Aides / Hourly	PS Budget	OTPS Budget	Fringe	Total	% Increase
2025	501	30	16	$53,679,194	$95,900,865	$16,461,953	$166,042,012	00.05%
2024	501	30	16	$54,290,508	$98,040,138	$13,633,903	$165,964,549	13.37%
2023	485	30	16	$43,016,089	$90,436,500	$12,942,144	$146,394,733	7.92%
2022	483	30	16	$38,397,943	$85,531,063	$11,719,465	$135,648,471	37.94%
2021	474	27	16	$36,842,549	$50,210,145	$11,283,945	$98,336,639	7.10%
2020	438	27	16	$35,262,139	$45,862,557	$10,689,350	$91,814,046	4.97%
2019	428	5	30	$33,592,612	$43,532,302	$10,344,565	$87,469,479	39.44%
2018	411	5	30	$31,704,410	$21,832,718	$9,194,015	$62,731,143	3.55%
2017	401	5	30	$31,056,080	$20,916,796	$8,605,288	$60,578,164	4.81%
2016	392	5	30	$30,233,989	$19,407,619	$8,155,517	$57,797,125	4.70%
2015	392	5	30	$29,131,972	$18,154,572	$7,915,476	$55,202,020	3.68%
2014	383	5	30	$26,813,635	$18,761,240	$7,669,819	$53,244,694	2.18%
2013	380	5	20	$26,623,635	$17,951,822	$7,532,499	$52,107,956	1.93%
2012	372	12	0	$25,756,827	$18,781,428	$6,603,649	$51,122,139	1.14%
2011	372	12	0	$26,046,827	$18,492,228	$6,006,573	$50,545,628	2.76%
2010	372	12	0	$26,046,827	$17,777,228	$5,362,640	$49,186,695	1.88%
2009	371	13	0	$25,189,842	$18,208,861	$4,879,903	$48,278,606	6.22%
2008	371	13	0	$23,597,857	$17,259,313	$4,799,066	$45,656,236	10.80%
2007	364	13	0	$22,616,783	$14,258,471	$4,375,788	$41,251,042	5.73%
2006	342	13	0	$20,255,911	$14,683,855	$4,076,823	$39,016,589	1.01%
2005	342	13	0	$19,737,687	$14,851,355	$3,887,624	$38,476,666	***
2004	334	13	0					***
***								***
1996	154	0	30	$6,199,709	$2,573,715	na	$8,773,424	***

History: NYCERS Administrative Expenses - 2000 to 2023

The following is a chart of NYCERS administrative expenses from 2000. The information comes from NYCERS Comprehensive Annual Financial Report.

As a point of reference NYCERS had an annual budget of $8.8M in FY-1996, the last year NYCERS was part of the city budget.

NYCERS Admin Expenses

Fiscal Year	Personnel Expenses	Contracts & Consultants	Phone, Mail, & Printing	Rentals	Software, Hardware, Support, Supplies, & Maintenance	Depreciation & Credits	Total
FY-2023	$57,736,915	$19,910,959	$1,037,015	$9,282,322	$17,825,949	$0	$105,793,160
FY-2022	$52,303,943	$27,418,528	$1,029,424	$9,329,701	$14,906,397	$0	$104,987,993
FY-2021	$48,693,043	$14,058,975	$1,290,546	$6,617,040	$16,753,334	$0	$87,412,938
FY-2020	$45,736,806	$11,337,750	$1,173,896	$6,870,614	$12,548,240	$0	$77,667,306
FY-2019	$43,717,712	$15,884,418	$1,114,263	$6,637,059	$14,719,873	$0	$82,073,325
FY-2018	$40,444,145	$4,310,427	$1,072,077	$6,348,888	$7,513,233	$0	$59,688,770
FY-2017	$39,505,894	$3,829,758	$1,561,282	$5,909,352	$8,864,342	$0	$59,670,628
FY-2016	$37,950,289	$4,687,929	$1,360,397	$5,453,383	$7,230,989	$0	$56,682,988
FY-2015	$37,368,409	$3,652,,154	$1,336,002	$5,037,893	$7,239,560	$0	$54,635,018
FY-2014	$33,571,938	$3,773,082	$1,269,387	$4,863,720	$6,952,691	$0	$50,430,818
FY-2013	$33,064,087	$3,102,385	$1,078,411	$4,674,442	$6,797,095	$0	$48,666,420
FY-2012	$32,623,085	$3,088,256	$1,096,186	$4,796,584	$9,780,637	$0	$51,384,748
FY-2011	$31,748,443	$4,108,186	$995,415	$4,741,621	$4,780,811	$0	$46,374,476
FY-2010	$31,527,659	$5,434,495	$1,041,471	$4,278,903	$6,678,071	$715,000	$49,675,599
FY-2009	$30,187,604	$4,043,775	$914,311	$4,047,949	$8,198,354	$1,430,000	$48,821,993
FY-2008	$28,344,427	$6,401,7445	$997,316	$4,138,211	$5,687,716	$1,430,000	$46,999,415
FY-2007	$27,123,219	$2,677,793	$1,055,233	$5,203,902	$4,205,095	$1,430,000	$41,695,242
FY-2006	$24,992,543	$3,124,688	$1,497,895	$4,797,895	$4,472,246	$1,430,132	$40,291,469
FY-2005	$24,474,710	$3,039,970	$827,277	$4,454,258	$3,118,356	$1,430,296	$37,306,867
FY-2004	$22,631,504	$3,124,800	$845,391	$4,192,543	$3,376,187	$1,430,000	$35,559,081
FY-2003						$1,430,000	$34,101,000
FY-2002						$1,430,000	$31,548,000
FY-2001						$1,430,000	$31,584,000
FY-2000	$15,990,745	$1,587,290	$718,686	$1,531,536	$2,691,719	$725,000	$23,244,976

From Bad To Worse

On April 30, 2024, the NYC Comptroller announced new asset allocations for the five NYC pension funds. This announcement boils down to a statement that four of the five pension systems are going to reduce their % of stock holdings and increase their % of garbage assets, otherwise known as "alternative assets". Why would anyone invest in garbage? That is a key question.

The pension trustees, which included the Comptroller, would have you believe their current asset allocations are doing well and that they are going to make them better.

Of course, there is no analysis of the investment performance of the current asset allocations, whether it is better than a basic 60/40 stock and bond asset allocation and whether the new asset allocation will make things better.

That is because that the current asset allocation is doing worse than the basic asset allocation and that an expansion of the current asset allocation will only make the deficit worse.

I won't even get into issue of runaway investment fees for the garbage asset class.

History: Health Insurance Costs for NYC Employees and Retirees for FY-2023 and FY-2014

Based on reports from the NYC Office of Labor Relations, NYC spent the following amounts on helath insurance for FY-2023 and FY-2014.

The amounts do not include payment for the Housing Authority (HA) or the Health and Hospitals Corp. (HHC).
It also does not include payments to retirees for refunds of Part B premiums that the retirees pay to Medicare every month (est. $415M from City funds for FY-2023).

Health Insurance Costs

Group	FY-2023		FY-2014
Employees	$5,580B		$3,009B
Non-Medicare Retirees	$1,619B		$0,787B
Medicare Retirees	$0,452B		$0,357B
Total	$7,651B		$4,152B

It is clear that the City's costs for health insurance are rising. But what the City doesn't make clear is that it is the costs for employees and non-Medicare retirees that have gone up significantly. While the costs for Medicare retirees has increased $100M over ten years, the number of Medicare retirees increased by 22,400.

Average annual cost per contract:

• Employees
  • 2014 -- $10,862
  • 2023 -- $21,107
• Non-Medicare Retirees
  • 2014 -- $13,271
  • 2023 -- $25,571
• Medicare Retirees
  • 2014 -- $2,550
  • 2023 -- $2,840

Number of Contracts including HHC and HA

Group	FY-2023		FY-2014
Employees	325,434		335,381
Non-Medicare Retirees	76,376		71,434
Medicare Retirees	191,536		168,657
Total	593,346		575,472

Emblemhealth

In 2005, GHI and HIP merged to form Emblemhealth. In FY-2023, the City paid 96% of its health insurance costs to Embelemhealth ($7,488 out of $7,651).

Average annual cost for GHI anf HIP per contract including HHC and HA:

• Employees
  • GHI
    • 2014 -- $10,949
    • 2023 -- $22,616
  • HIP
    • 2014 -- $10,517
    • 2023 -- $17,913
• Non-Medicare Retirees
  • GHI
    • 2014 -- $13,080
    • 2023 -- $26,546
  • HIP
    • 2014 -- $14,140
    • 2023 -- $20,266
• Medicare Retirees
  • GHI
    • 2014 -- $2,599
    • 2023 -- $3,277
  • HIP
    • 2014 -- $2,318
    • 2023 -- $129

The $129 amount is not a typo. In 2022, Emblemhealth changed the monthly amount per contract for the HIP Mediacre Advantage coverge to $7.50. Why? I suspect that it was because of competitive pressure.

In Plain Sight - Growing Risk Level in NYCERS Investments and Runaway Fees.

Runaway Investments fees

In FY-2000 NYCERS paid $37.4 million in investment fees for an asset base of $42.8 billion.

In FY-2023 NYCERS paid $489.9 million in investment fees for an asset base of $82.4 billion.

The numbers speak for themselves. There is no benefit to these radically increased fees. Clearly, twice the $37.4 million in fees from FY2000 could cover the $82.4 billion in assets for FY-2023. But the current trustees have no idea what was going on in 2000.

This is a big part of the income inequality in America. This story is not just about NYCERS but every public pension plan in America.

Increasing Investment Risk

In a prior post from January 2020, I outlined a new accounting reporting requirement for government pension plans (GASB 72) mandating that plans report a breakdown of the reliability of the reported value of the plan's investments. The assets are broken down into 3 levels as listed below:

• Level-1 assets - open market - very liquid
• Level-2 assets - open market - not as liquid
• Level- 3 and NAV assets - no open market - not liquid

In addition to these crazy fees noted above, the risky Level-3 assets at NYCERS have grown steadily since 2015. On top of this growth in risky assets, this year there was a law passed in Albany to raise the limit (from 25% to 35%) on the amount of Level 3 and NAV assets in a NYS public pension plan.

In the table below you will see the growth for Level-3 and NAV class assets at NYCERS.

Note: As of FY-2023 NYCERS is relabeling alternative investments as net asset value items rather than Level 3 as a "practical expedient". This is a PR sleight of hand. Nobody wants to be called Level-3. "NAV" is a lot more vague. $19.8 billion (25% of the portfolio) for Level-3 and NAV assets is an obvious red flag for the risk level of the portfolio. You can be sure that $19.8B is the upper bound for this class and that a 50% reduction is a real possibility.

Ranking of NYCERS Assets via GASB 72

Fiscal Year	Level-1 Assets (in thousands)	Level-2 Assets	Level-3 Assets	Assets at Net Asset Value	Total
FY-2014	$27,028,432	$17,437,139	$10,642,729	$0	$55,108,300
FY-2015	$27,707,076	$17,175,757	$10,796,968	$0	$55,679,801
FY-2016	$27,330,534	$15,924,399	$10,377,791	$1,123,861	$54,756,585
FY-2017	$32,312,375	$17,461,428	$10,914,801	$95,987	$60,784,591
FY-2018	$31,219,885	$23,282,843	$10,880,803	$66,675	$65,450,206
FY-2019	$34,128,310	$22,782,825	$11,534,369	$6,979	$68,452,483
FY-2020	$33,647,567	$24,941,479	$11,856,921	$3,735	$70,449,703
FY-2021	$42,162,979	$30,981,818	$14,845,548	$1,240	$88,091,585
FY-2022	$32,892,068	$26,386,373	$18,726,172	$1,129	$78,005,742
FY-2023	$35,986,966	$25,235,457	$461,156	$19,845,541	$81,529.120

Investment Expenses for the Assets by Quality for FY-2023

In FY-2023 NYCERS paid the following investment management fees for the different levels:

1. $54.7M for Level 1 assets (FY-2019 fees = $39.7M).
2. $25.0M for Level 2 assets (FY-2019 fees = $18.4M)
3. $375.0M for Level 3 and NAV assets (FY-2019 fees = $140.5M)

Again, the numbers speak for themselves. The trustees are being rolled big time - everywhere.

How to Do Investment Fees the Right Way - TRS and Its TDA Fund

TRS is one one the five NYC pension funds, the one that covers NYC teachers. Actually TRS is two funds, a defined benefit fund (DB) and a defined contribution fund (DC). TRS calls its DC fund the TDA Program. The TDA program is funded by payroll deductions (approximately $1.0B/year) from the teachers. This fund is teachers' money, not tax payers' money. Well not really. The DB fund guareantees a 8.25% and 7% rate of return on fixed income assests in the TDA fund. But that is another story for another day.

The following list is the closing balances of the two funds as of June 30th of following years:

• Year - DB Fund - TDA Fund
• 2020 -- $59.3B -- $37.0B
• 2021 -- $78.3B -- $43.0B
• 2022 -- $64.0B -- $42.2B
• 2023 -- $67.9B -- $45.4B

You can see from the numbers that the TDA fund runs a tighter ship than the DB fund. The TDA fund grew by 22.7% over the three years while the DB fund only grew by 14.5%. Eeven though the TDA rate of return is is impressive compared to the DC fund, what rally is superhuman is the investment fees that the TDA fund pays versus the DC fund. See the fees for the two funds over the four years listed below:

• Years - DB Fund - TDA Fund
• 2020 -- $290.8M -- $0.6M
• 2021 -- $405.7M -- $13.7M
• 2022 -- $535.3M -- $24.2M
• 2023 -- $518.9M -- $11.2M

How does the TDA spend so little on fees and does so much better that the DB fund???

Harry Nespoli Fails to File a Final Appeal to Protect the Pension Rights of His Union Members

In January 2017, I wrote a post about how NYCERS was stripping pension rights from Tier 4 members who became sanitation workers after 4/1/2012 based falsely on the new Tier 6 law.

To make this issue simple, Tier 6 does not force Tier 4 members into Tier 6-3 just because the member becomes a sanitation worker and even if it did, it would be unconstitutional.

In November 2016, four and a half years after the passage of Tier 6 NYCERS changed its previous position on this issue and began sending notices to certain Tier 4 sanitation workers that their Tier 4 Sanitation benefits were being revoked and they were being forced into Tier 6-3 Sanitation benefits.

On 11/15/2016 Harry Nespoli filed a complaint in court against the NYCERS Board of Trustees attempting to reverse this blatant attack on his union members' pension rights.

NYCERS Board of Trustees

There are three votes out of seven on the NYCERS Board of Trustees controlled by the three largest city unions. Nespoli was and continues to be head of the MLC, the organization representing all city unions. It is not clear whether Nespoli spoke to the three union reps on the Board of Trustees about this issue. There should have been a full debate about this issue at a board meeting. This would have been the best way of handling this issue and preventing unnecessary litigation.

The Six Other NYS Pension Systems

In addition, there are implications of this issue for the other six NYS pension systems.

For instance, I have a strong suspicion that
a 2008 Tier 4 NYCERS member who joined NYPD in 2013 is covered by Tier 2 police pension benefits and
a 2011 Tier 4 NYCERS member who joined NYPD in 2013 is covered by Tier 3 pre-Tier 6 pension benefits.

This is counter to the NYCERS position.

Trial Court

Four and a half years later, on 6/10/2021, the trial court reached a court decision on this issue. The trail court incorrectly decided that NYCERS was an expert on pension law and confirmed its unfounded actions.

Nespoli appealed the trial decision.

First Department

On 5/5/2022 the First Department Appellate Court upheld (case # 02096-2021) the incorrect trial court decision. It discarded the constitutional pension protection clause with only the following statement which is, on its face, factually incorrect.

Petitioners’ reclassification did not violate the New York State Constitution (NY Const art V, § 7[a]), since “petitioners were never entitled to [SA]-20 benefits to begin with and, thus, did not have a contractual right to those benefits” (Matter of Ly, 189 AD3d at 1413).

In fact, on March 30, 2012, every Tier 4 NYCERS member was eligible to be covered by the SA-20 plan if he or she became part of the Uniform Sanitation Force. The court is saying they did not, in complete denial of reality. What we have here is a blind umpire.

On April 1, 2012, Tier 6 can not take away a pension right that existed on March 30, 2012, the day before. The scary thing about this decision is that there is no rational argument supporting it.

Court of Appeals

There is no record on the court website that Nespoli filed an appeal to the NY Court of Appeals. This is a constitutional issue and there are impacts for the other six NYS pension systems. It is clear that this issue should have been taken to the Court of Appeals.

Of course, this was the same time that the City and the MLC were busy trying to deprive city retirees of their Medicare supplemental health insurance benefits in order funnel the money saved into union welfare funds.

NYS Constitution

The following is the text from the N.Y. Constitution Article V, § 7:

"The rights of public employees are thus fixed as of the time the employee becomes a member of the system. We have consistently held that the constitutional prohibition against diminishing or impairing retirement benefits prohibits official action during a public employment membership in a retirement system which adversely affects the amount of the retirement benefits payable to the members on retirement under laws and conditions existing at the time of entrance into retirement system membership. "

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